German asset manager KGAL has now launched its first renewable energy impact fund, titled European Sustainable Power Fund (ESPF) 5, according to a statement forwarded to AMWatch.

The new fund aims to achieve a target return (net IRR) of 7-9 percent over its 10-year term while investing in European renewable energy assets contributing to the European Green Deal, which aims to make the EU climate neutral in 2050.

The asset manager has classified the new fund as an Article 9 product under the new European financial disclosure regulation, which went into effect in March. This means that the fund targets both financial and sustainable objectives.

"For investors, sustainability and impact measurement are increasingly essential, and we at KGAL can fully relate to this as sustainability aspects are an integral part of our business and risk strategy. That is why we are incredibly proud to launch one of the first renewable impact funds under Article 9, with sustainability investment being first and foremost, in response to investor demand," Christian Schulte Eistrup, head of KGAL's international institutional business, says in the statement.

"We place huge importance on the decarbonization of the European economy both from a corporate and an investment perspective. For example, based on our efforts to meet various climate change targets, our renewables portfolio supplied almost 1.7 million people with green energy by the end of 2020. And we will not stop there as we will continue to play our part to decarbonize society and ultimately protect our planet," adds Florian Martin, head of the firm's client business.

Multiple investments

The fund will invest in renewable energy generation through photovoltaics, onshore and offshore wind power, and hydroelectric facilities. Investments in other renewable energy generation and storage technologies as well as grid infrastructure will also be considered.

The investment strategy will focus particularly on the EU-27 and the EFTA member states. The European investment market for renewable power generation offers immense growth and diversification potential, according to Michael Ebner, head of sustainable infrastructure at KGAL.

"We are very well placed to take advantage of this opportunity based on our proven track record in renewables. We entered this space in 2003, which makes us one of the pioneers of the energy transition and have acquired over 150 photovoltaic plants, wind farms and hydroelectric power plants on behalf of our clients since then – and to date our total investments amount to more than EUR 3.2bn across ten European countries,” explains Michael Ebner, managing director and head of sustainable infrastructure.

The new fund's portfolio manager Carsten Haubner says in the statement that the deal pipeline is "extremely buoyant."

"The three pillars of our investment strategy remain unchanged – we will combine the acquisition of project rights in the development and construction phase with value-add approaches for undervalued existing assets and tapping new markets in the develop-and-hold area – to help investors achieve their objectives. As ever, our primary focus is to maintain a balanced risk-return profile for our institutional investors," Haubner says.

Potential for co-investments

In recent interview, KGAL Senior Director of Institutional Business Development for the Nordics Elin Aberg and Schulte Eistrup told AMWatch that large Nordic-based investors are increasingly interested in co-investments and club deals. This was something that the firm might open to because of the investor demand, they said.

"We definitely see increasing interest in co-investments and club deals because the largest Nordic pension funds' teams have the know-how and the ability to assess the individual deals," Aberg said

According to the business developer, there is definitely strong appetite for the upcoming fund.

"The Nordic investors' understanding of the risk/rewards and the fundamentals behind investing in renewables is much better than it was only a few years ago," she said, and added:

"It's a much more diverse investors base than five years ago as Tier 3 and Tier 4 investors have started to commit to renewable funds because they recognize the impact these investments can have on their overall portfolio."

KGAL floats idea for co-investments in green energy with Nordic "know-how" investors